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Countries including Germany, the Netherlands, France, Italy and Sweden are readying national legislation that would help bankers continue to service the 18 trillion pounds of derivatives contracts that could be disrupted if the U.K. leaves the EU without an agreement in place. The Dutch legislation may even enable brokers and high-speed traders to conduct new business from London, for a while. [...]
The banking industry’s top lobbying groups and financial regulation lawyers in London are scouring European nations’ laws to determine how much business needs to move by March 29 and what can continue in the U.K. capital. The Association for Financial Markets in Europe, whose members focus on wholesale markets, said that while it had preferred a more harmonious approach across the EU, the steps by individual nations are welcome to mitigate key risks arising from Brexit.
“Significant chunks of wholesale financial services might continue from the U.K. for a period of time,” Damian Carolan, partner at law firm Allen & Overy, said in an interview. “I don’t think anyone is expecting these regimes to remove the pressure to continue moving business to the EU, but it will hopefully allow for a far more orderly process of transition in a hard-Brexit scenario,” he said.
The national preparations add to an EU measure that ensures continued access to critical infrastructure in London. Here is a look at legislation under consideration in five of the most important EU economies:
Germany
The government drafted a law to protect existing derivatives contracts that companies have concluded with U.K. banks. Germany’s main industry lobby welcomed the move, saying such transactions are “indispensable” to protect against interest rate or currency swings. However, it also called on Berlin to temporarily allow new business -- not just the servicing of legacy contracts -- because firms could lose access to some hedging products if banks don’t manage to relocate relevant business to the EU in time. In theory, German regulator BaFin also has the power to waive the authorization requirement for foreign firms if supervision at home is deemed strong enough, though using it in the context of Brexit may be a challenge.
Paris published legislation in the form of a decree that, among other things, is meant to make it easier to transfer existing financial contracts from the U.K. Industry representatives and lawyers note that this approach appears to be more restrictive than other national solutions. Existing insurance policies will be allowed to be serviced as long as they’re not altered to the point that they become new contracts.
U.K. investment firms would win a temporary exemption from needing a Dutch license to do business in the Netherlands, which would also help them service ongoing derivatives contracts. Lawyers at Linklaters LLP, Allen & Overy and Ashurst LLP say the exemption could also allow investment firms to conduct new business in the Netherlands from their U.K. offices. The exemption would be granted until 2021, so business would need to be transferred to another licensed company by then.
Italy
The Italian finance ministry has committed to approving legislation that would give Italian businesses access to U.K. banking, insurance and other financial firms. While the legislation hasn’t been formally proposed, the government said it would provide a temporary period of time during which U.K. firms could continue operating in Italy. The Italian central bank has also urged U.K. financial institutions to inform their clients in the country about how they intend to manage existing relationships after Brexit.
Sweden
U.K. firms could continue to handle securities business and operate in Sweden until the end of 2021 under proposed legislation. The Swedish government says the measure is needed to allow U.K. firms to continue providing services to professional clients with whom they struck agreements prior to Brexit. British banks operating in the country focus primarily on institutional and large corporate clients for mergers and acquisitions and capital markets business, while Swedish trading venues have more than 100 members based in the U.K., according to Sweden’s financial regulator.